By TIOL News Service

ALLAHABAD, OCT 13, 2014: THE assessee is engaged in the manufacture of cosmetic preparations and availed CENVAT credit of duty paid on the inputs and capital goods used by them in relation to the manufacture of their final products. According to the department, since the assessee wrongly availed CENVAT credit, a show cause notice was issued demanding customs duty amounting to Rs.1 ,76,04,762 /-. The assesse filed an application under Section 127B of the Customs Act, 1962 before the Customs and Central Excise Settlement Commission praying for the settlement of the dispute. The Commission, by its order dated 28th May, 2002, directed the assessee to pay the counterveiling Duty, which liability was paid by the assessee . The Commission in its order settled the matter on the following terms:-

"(i) The correct duty liability of the first application is Rs.1 ,62,06,346 /- as accepted by them in their application. This liability has now been fully paid. The correct liability of the second applicant is Rs.1 ,25,62,941 /- as accepted by them in their application. This liability has also been fully paid. The duty liability includes the additional duty of Customs ( CVD ) payable on the goods of the applicant. In respect of the amount representing the CVD , the DRI shall issue a certificate in proof of payment thereof so as to enable the applicant to claim the benefit of MODVAT credit in accordance with law."

From a perusal of the aforesaid, it is clear that the Commission directed that in respect of the counterveiling duty paid by the assessee , the Directorate of Revenue Intelligence ( DRI ) would issue a certificate of proof of payment made by the assessee , so as to enable the assessee to claim the benefit of MODVAT credit in accordance with law. Pursuant to the order of the Commission, the counterveiling duty was paid by the assessee in August, 2002 and a certificate was obtained from the DRI on 6th August, 2002. The certificate indicated proof of payment of customs duty including counterveiling duty by the assessee . Pursuant to the certificate, the assessee wrote a letter dated 23rd August, 2002 to the Commissioner of Central Excise, Noida indicating that the assessee would be availing credit of additional counterveiling duty paid by them on the basis of the certificate issued by the DRI. A reminder was written on 3rd October, 2002. Since the assesse did not hear anything from the department, the assessee took the necessary CENVAT credit.

In this background, the department issued a show cause notice dated 1st October, 2003 asking the assessee to show cause as to why credit of additional Counterveiling duty that was taken by the assessee should not be denied. The notice also indicated that penalty would also be imposed on the Managing Director and the Authorized Signatory of the assessee. The assessee submitted a reply to the show cause notice, which was not accepted. The Commissioner of Customs and Central Excise passed an order in original dated 26th December, 2003 confirming the entire duty and imposed penalty of an equivalent amount. Being aggrieved, the assessee preferred an appeal before the Customs Excise and Service Tax Appellate Tribunal, which was allowed and the order in original was set aside. Please see 2006-TIOL-765-CESTAT-DEL

The department, being aggrieved, has filed the present appeal in the High Court.

The counsel for the department contended that the certificate issued by the Directorate of Revenue Intelligence ( DRI ) cannot be taken into consideration, inasmuch as the certificate is required to be issued by the Superintendent of Central Excise under Rule 57E (4) of the Central Excise Rules, 1944.

The High Court found the submission of the counsel for the department as patently erroneous. The Settlement Commission in its order has given a categorical finding that as the consequence of their order, the assessees are entitled to a certificate of payment of Counterveiling duty from the Jurisdictional Commissioner or the DRI who are duty bound to issue such certificate. Consequently, the certificates issued by the DRI in consequence of the order of the Settlement Commission is perfectly legal. Further, Rule 57E is not applicable. High Court found that the counterveiling duty was paid by the assessee in August, 2002 and the certificate was issued on 6th August, 2002 by the DRI . The Cenvat Credit Rules, 2002 came into existence with effect from 1st March, 2002 and, consequently, the Cenvat Credit Rules became applicable. High Court was of the opinion that Rule 57E of the Central Excise Rules, 1944 is not applicable in the instant case.

With regard to imposition of penalty for contravening the provision of Rule 57E (3), (4) and (5) of the Central Excise Rules, 1944 and Rule 7(1)(b) of the Cenvat Credit Rules, 2002, the Settlement Commission granted full immunity to the assessee for levy of penalty or fine under the Act in respect of matters covered in the dispute. The contravention done the Ex-Managing Director and the Authorised Signatory was one of the disputes which was settled by the Settlement Commission and, consequently, it was no longer open to the department to issue a show cause notice for levying such penalty.

So, the appeal fails and is dismissed. The question of law is answered against the department and in favour of the assessee.

(See 2014-TIOL-1784-HC-ALL-CX)